The charge, which is more than planned following a £700m top-up in the second quarter, meant that Lloyd’s pre-tax profits rose just 4pc to £2.5bn in the six months to June, below City expectations of £2.9bn.

Lloyds’ total bill for the PPI scandal now stands at just over £18bn, the largest in the banking sector. The extra amount will be used to cover “reactive claims” of around 9,000 per week ahead of the August 2019 deadline for complaints.

On top of the PPI hit the 252-year-bank also confirmed on Thursday that it will repay just under £300m (£283m) back to 590,000 mortgage customers mistakenly charged between 2009 and January 2016.

Shares in the bank slipped on Thursday morning as the market digested the news.

However, despite shelling out for PPI and mortgage arrears, the rise in first-half profits will be seen as another boost to chief executive António Horta-Osório, given this is the lender’s first set of results since the bank returned to full private ownership.

The Government’s sale of its final stake in the lender in May meant that Lloyds became the first bank to repay its bailout, one of the largest during the financial crisis.

Analyst reactions were mixed on Thursday morning, with Rebecca O’Keeffe, head of investment at Interactive Investor, saying that “investors will be slightly disappointed” by the half-year results as the extra costs weigh on sentiment.

However Laith Khalaf, a senior analyst at Hargreaves Lansdown, said it was a “sign of Lloyds’ strength that it can shrug off £1.6bn of misconduct charges to post a strong rise in profits”.

“Overall this is a strong set of numbers from Lloyds, blighted, but not overshadowed, by misconduct costs,” he said. “The government has exited the bank and is now no longer selling stock in the market, which removes a significant downward pressure on the share price.”

Mr Horta-Osório said he had “no intention of going anywhere” when asked about his potential departure on Thursday morning.

“Following the successful transformation of the group to become a simple, low risk, UK-focused retail and commercial bank, we have delivered another strong set of results,” he said.